Medical Necessity vs. MDM: We Have a Winner

What is the primary driver of an E/M level? Find out what lands the knockout punch.

By Brian Meredith, CPC

Per the CPT® codebook, medical decision-making (MDM) “refers to the complexity of establishing a diagnosis and/or selecting a management option as measured by” three criteria categories. MDM can be quantified according to this criteria, and associated with an evaluation and management (E/M) level for each E/M category. For example, moderate complexity MDM is associated with a level four visit in the setting of a new patient office visit (99204 Office or other outpatient visit for the evaluation and management of a new patient, which requires these 3 key components: A comprehensive history; A comprehensive examination; Medical decision making of moderate complexity), or a level two visit for subsequent patient care in the inpatient setting (99232 Subsequent hospital care, per day, for the evaluation and management of a patient, which requires at least 2 of these 3 key components: An expanded problem focused interval history; An expanded problem focused examination; Medical decision making of moderate complexity). Because of this, we can speak of an E/M level that “exceeds,” “meets,” or is “below” the level of MDM.

When assigning an E/M level, medical necessity means “the service is furnished in accordance with accepted standards of medical practice for the diagnosis or treatment of the patient’s condition,” according to the Centers for Medicare & Medicaid Services (CMS) Medicare Program Integrity Manual (IOM), Chapter 13, Section 5.1.

Comparing the Contenders

MDM and medical necessity are very different concepts. And although both are important, medical necessity — which unfortunately is the more difficult concept to quantify — is the more important factor when selecting an E/M service level.

In the Evaluation and Management Services Guide, CMS warns:

The provider must ensure that medical record documentation supports the level of service reported to a payer. You should not use the volume of documentation to determine which specific level of service to bill.

Services must meet specific medical necessity requirements in the statute, regulations, and manuals and specific medical necessity criteria defined by National Coverage Determinations and Local Coverage Determinations (if any exist for the service reported on the claim). For every service billed, you must indicate the specific sign, symptom, or patient complaint that makes the service reasonable and necessary.

Regarding medical necessity requirements, CMS says, “for every service billed you must indicate the specific sign, symptom or patient complaint.” This is because for each documented medical condition there is a reasonable and necessary limit to the treatment provided and documented. Billing beyond this limit may mean the claim is not medically necessary and is inappropriate.

The Office of Inspector General’s (OIG) Compliance Program Guidance lists “upcoding” (i.e., “billing for a more expensive service than the one actually performed”), as well as “submitting claims for equipment, medical supplies and services that are not reasonable and necessary,” among the risk areas most frequently targeted for investigations and audits. According to the OIG’s Compliance Program for Individual and Small Group Physician Practices, “Billing for services, supplies and equipment that are not reasonable and necessary involves seeking reimbursement for a service that is not warranted by a patient’s documented medical condition.” This implies there is a necessary correlation between the patient’s medical condition and the billed E/M service level.

This correlation was explicitly stated by Medicare administrative contractor NHIC in its 2009 Medicare Part B Provider Education article, “Evaluation and Management (E/M) Coding Requirements.” Under the subheading Establishing Medical Necessity, it states:

The chief complaint or reason for the encounter establishes the medical necessity and reasonableness for services. It is a concise statement describing the symptom, problem, or condition, diagnosis, physician recommended need(s), or other factor that is the reason for the encounter, usually stated in the patient’s words. It is sometimes referred to as “presenting” problem.

After establishing this relationship between the presenting problem and medical necessity, the article continues, “The medical necessity and reasonableness of the level of service billed is directly correlated to the nature of the presenting problem.”

CPT® defines five distinct levels of severity of presenting problems: minimal, self-limited, low, moderate, and high. Many E/M categories also have five levels of service. This implicitly supports the notion that the level of service billed should be correlated in some way to the nature of the presenting problem. This principle is also well summed up by Steven Levinson, MD, in his American Medical Association (AMA) published book, Practical E/M: Documentation and Coding Solutions for Quality Patient Care, in which he says, “Medicare medical directors and auditors commonly apply this principle when reviewing E/M services, by determining that increasing levels of care are proper and needed with increasing severity of illness.”

The CPT® codebook provides “usual” levels of presenting problem severity for each CPT® code, as well as clinical examples for each E/M code among various specialties. For example, for a level three, new patient office visit (99203 Office or other outpatient visit for the evaluation and management of a new patient, which requires these 3 key components: A detailed history; A detailed examination; Medical decision making of low complexity), CPT® says the patient’s problem(s) are usually of moderate severity.

According to both CPT® and CMS, the medical necessity of a service can be quantified, albeit somewhat loosely, by the level of the severity of the presenting problem.

CMS incorporates this concept into their E/M guidelines in the Presenting Problem column of the Table of Risk. The CMS Table of Risk goes further than CPT’s® level description of presenting problem severity by providing specific clinical examples. For example, non-insulin dependent diabetes is an example of a stable chronic illness (low severity), and a lump in breast is an example of an undiagnosed new problem with uncertain prognosis (moderate severity). CMS also adds the dimension of how an additional presenting problem may impact severity. In the case of two stable presenting problems, for example, the severity rises from low to moderate. This information makes it possible for an auditor to approximate the severity of the presenting problem and the level of medical necessity for each case — and then, just like for MDM, to identify the appropriate E/M level.

Still Confused? Remember the E/M Mantra

How does this help to answer our question about medical necessity vs. MDM? The quote from the CMS Evaluation and Management Services Guide above is a reformulation of what could be referred to as the CMS payment mantra, as stated in the Medicare Claims Processing Manual (IOM), Chapter 12, Section 6.1A:

Medical necessity of a service is the overarching criterion for payment in addition to the individual requirements of a CPT code. It would not be medically necessary or appropriate to bill a higher level of evaluation and management service when a lower level of service is warranted. The volume of documentation should not be the primary influence upon which a specific level of service is billed.

Note where CMS says the medical necessity requirement must be met “in addition to the individual requirements of a CPT code.” That means, even if a service meets the technical requirements of the CPT® code level (including MDM), that level may still be higher than is medically necessary, rendering it not payable by Medicare at that level.

The NHIC article quoted above mirrors the CMS position on medical necessity over the individual requirements of a CPT® code, “In addition to the medical necessity and reasonableness of an E/M service, the components of History, Examination and Medical Decision Making are the 3 key components in selecting the appropriate level of service.”

In other words, while meeting the requirements of a CPT® code cannot outweigh medical necessity, a service billed at an appropriate level of medical necessary can be down-coded on review if it doesn’t meet that CPT® code’s requirements. The volume of documentation can’t compensate for a lack of medical necessity, but neither can medical necessity compensate for a lack of documentation.

Medical Necessity Makes the Knockout Punch

MDM is just one of the three key components used to determine if the individual requirements of a CPT® code are met. For E/M categories that require only two of the three key components to be used to calculate the final level, the MDM level may not count.

In contrast, medical necessity, as suggested by the severity of the patient’s presenting problem, should always be considered when the level that “meets the individual requirements of a CPT code” exceeds the code level suggested by the assessment. At the very least, this should flag the provider for additional scrutiny before billing to prevent claim submission that does not meet the CMS overarching criterion for payment: medical necessity — the knockout winner in its contest with MDM as the primary driver of an E/M level.

OIG Compliance Program for Individual and Small Group Physician Practices

Brian Meredith, CPC, is president and founder of Healthforce, Inc., a healthcare administrative consulting firm with a focus on revenue integrity through compliance, coding and billing guidance. He has over 20 years’ experience in the healthcare industry, which formerly includes director of billing compliance at Boston Children’s Hospital, compliance and coding consultant with Public Consulting Group in Boston, Mass., and compliance specialist with UMass Memorial Medical Group. Meredith is a member if the Holyoke, Mass., local chapter.